IFTA Audits

"You have done very well being thrown into this mess, but the downside of an audit is that you have to have been through one in order to get through one."

I've been meaning to post this one up for awhile, but I wanted enough to time to pass to ensure that I was objective when I wrote it. The quote above was from my audit mentor who had a very valid point. An audit is a hard process and it is best understood from the end of it. I think back and there are a lot of things I would have done differently. I can't put you through an audit to show you what it is like, but I can show you a piece of my audit and make some recommendations so that you can get through it better than I did.

IFTA audits are pretty standard in the industry. About 15% of companies in each state are Audited each year. The larger companies are audited multiple times a year by multiple states and they often have an amazing bad ass person dedicated to taking care of auditors when they show up. Smaller companies don't have this option or the funds for hiring someone like this, so some poor person has to step up to the plate.

What is an IFTA Audit?An IFTA audit is when a state government sends and auditor in to take a look at your companies process for IFTA Tax filing, checks your numbers on your previous filings and determines how much your company owes them in unpaid taxes, fees and penalties. Your company may be selected because of previous discrepancies in your taxes or because you hit the bad luck lottery and were selected.

How long does an IFTA Audit last?Each audit is supposed to last for about a year, but can stretch anywhere up to 4 or 5 years depending on whether the government and owner of the company can reach an agreement on how much is owed.

How much documentation?Each audit typically covers 4 years worth of documentation, but more may be requested by the auditor. A shorter period may be covered if the company is newer and does not have 4 years worth of documentation. The auditors may start by requesting the documentation and then request that you provide it to them in excel format.

Tip: Keep a copy of all your IFTA information in excel format and save yourself the huge headache of converting hundreds and thousands of pages of paperwork.

What kind of documentation?

- Filed forms: You need to provide IFTA a copy of all of your quarterly filings for the period that the auditor asks for. If you do not have them on file you can request your states records department. I would also recommend scanning them into the computer and saving in a .pdf format so that they can be sent through the email to the auditor.

- Worksheets: This is the spreadsheet that you have used each quarter to combine the miles from each truck and month to generate your total IFTA miles for each state.

- Summaries: Depending on the State auditing you this may be included under the term "worksheet". An IFTA summary is the total miles for each truck for each month in a quarter. They will also require this in excel form.If your company contracts underneath a larger carrier that has GPS in their trucks, this will be provided to you by that carrier. Be wary when using these though, because depending on who you get as an auditor, the may want you to provide a company trip sheets as well that back up your filings.

- Trip Sheets: The reason the auditor wants to see these is purely for the route information and odometer readings at the start and end of each trip. Many of the larger carriers have gotten rid of this information off of their trip sheets, because they do not need them. They have the GPS information. However, the one thing I have learned from the audit is that the simplest way to avoid an issue with an auditor as a small company is to have your drivers fill out an extra trip sheet with this information from the get go. You can then type this information into an excel spreadsheet trip by trip for each truck and use it to generate your own IFTA summary.

- Log Pages: Sometimes, if a company's trip sheets are not up to standard with the state and odometer information, an auditor will request log pages from the drivers which often show the route and odometer information, or at least pieces of it as well. I know people that have argued the privacy act against providing these and occasionally they have won, but I wouldn't recommend it.

- Settlements: Sometimes, if your Trip Sheets and Log pages are not enough, or if their is a slight discrepancy in the numbers provided on those, the auditor may also ask for a copy of the settlements. And more than likely they will want them in excel format. These can be converted, but the data may be corrupted.

- GPS markings: If you contract under a larger carrier and file your IFTA taxes using summaries from a larger carrier, the auditor may request all the GPS pings from all your trucks for the entire audit period covered. Be warned this a lot of DATA - thousands and thousands of pages worth, and being the lazy office workers they are, the auditors want you to convert all of this DATA into excel for them.When this data is generated by the GPS systems, it writes it all into a format that the GPS system itself can easily understand. The larger companies have this format loaded into their computer systems and generate the summaries from each truck based on it. It is then converted into a pdf form and printed out. They can go back in the system and look at the GPS pings and the right person can pull the ping information directly and convert it to a pdf document - not an excel document. In order to get an excel document, the data has to be converted into pdf first and then converted into excel. Easy right? Not quite. Errors can occur when a pdf is converted to excel, corrupting the data. "5" might become "s", "8" might become "s" also. Other numbers may also become letters. You can fix this by manually going through and attempting to figure it out. If you are going to be audited and you have used a larger carriers summaries, I recommend getting this Data done as soon as you get that first audit letter.

-GPS functioning ability form: If the GPS pings are used during an audit, the auditor will at some point hand out a form requesting the information from the larger carrier on how their system works. As simple as the form looks - being only 2-3 pages, it can take awhile to fill out. If you need GPS pings, be proactive and ask your auditor for this form.

What is an estimation?

The words that you never want to hear out of your auditors mouth are, "We have insufficient data. I recommend we do an estimation." This is something you really don't want to happen. An estimation is when they take the data from the best year on your best truck with the most information and data, and then apply it to all your other trucks in your fleet to make up for any possible discrepancies that might have been made in your taxes. This is always a guarantee for having to pay the state a lot of money, but if you are at your wits end with these people and want to be left alone, it can be your only option.If you do choose to do this, ensure that they make an allowance for years that you have fewer trucks. I caught my auditor applying the same number of trucks to all years covered in the audit, pointed it out to him. He argued with me, but when I pointed out the potential consequences it could have with other government agencies and the lack of accuracy in his findings, he went through and changed it.

Final Findings:

At the end of the audit (first year), the auditor will go over his findings with you. You can choose to accept them or disregard them and request a re-audit.If you accept the number they give you, remember that penalties and fees will be attached to that number. You will be asked to sign and then make payment within a certain period of time. You can also discuss a payment plan with the supervisor and cashier.If you disagree with the numbers you can send a letter in giving the reason why you think they are inaccurate or you think that the audit needs to be redone. During this time, you may receive several invoices requesting payment on the amount assessed by the auditor. As soon as the letter is accepted this amount will be frozen until the audit is re-done.There are also other options, such as requesting a third party audit, taking it to a committee and then going straight to court. I did not make it this far, but I would happy to put up the information for someone who did.

Advice and Recommendations:

Prior to Audit:

- Keep your own trip sheets. During the tax season it might seem more of an issue, but when that IFTA auditor comes along you will be sending up prayers of thanks.- Keep as much data as you can in excel and on your computer - within reason of course,- Keep a copy of everything.- Get on to your drivers about keeping good paperwork and reward them for doing so.

During audit:

- Communication is key: Make sure you and your auditor are on the same page. If you are having a communication problem with your auditor, speak to their supervisor and request a new one. I was afraid to talk to the supervisor when I had some huge issues with our first auditor. She was a part of the audit and was learning the ropes from our auditor, so it seemed like she was a part of the problem. When I did get the courage to speak to her through pure frustration, she was not aware that there had been any issues. When our audit went into the second year, she brought in a new girl as our auditor who worked really well with me and was understanding and honest.

- Communication balance and standing your ground: I asked for a lot of advice from various people when our audit first began about how to handle and communicate with an auditor. A lot of people said, "Don't tell them anything,""Don't give them anything,""Give them more than they can handle," Give them more than they need," and the list goes on. The best advice I think I found was from the lady who mentored me, "Pick your ground and stand on it." In an audit this means you need to know where you stand, what resources you have available, what can be provided and what cannot provided. You also must explain the reasons why and look for an alternative so that the auditor can get where they need to be.

- Mentoring: If you can find a mentor to help you through the process. If you are contracted through a larger carrier, sometimes they will help you through the audit process. I was lucky enough to have two wonderful people from Prime help me through the final stages.

- Number Checking: Remember auditors might be a wizard with numbers, but they are human and they do make typos. If anything seems of check it because it probably is.

- Lawyer up: If you have the funds, as soon as you are contacted by the audit department, invest in retaining a lawyer. At the very least, they can help you through some of the legal jargon on the letters from the audit department.

- Diary and emails: Start up a diary and keep a record of all communication with your auditor. Send a copy of all emails sent out to a someone else inside your company so that you have a witness. My first auditor tried to accuse me of not communicating with him when it was the other way around.

After an audit:

- Reward whoever handled the auditor. If it was you-reward yourself, if it was someone else, please reward them or recognize them in some way. They went through all kinds of crap and deserve some recognition for time and sanity.